Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

4 Responses to “Equity Extraction and Mortgage Default”

Once upon a time, the Texas Constitution prohibited virtually all equity extraction on a residential homestead. In the nineties, the banksters mounted a huge PR campaign to convince voters to change that. While successful in part, equity extraction was limited to 80% of the homes value, saving Texas from the worst of the mortgage crisis.

The idea of ‘strengthening recourse’ seems like a very, very, very bad idea.

As far as I remember, in 2006, it was the lenders who were chasing borrowers, making cold calls to offer loans and twisting appraisers’ arms to overvalue the properties, not the borrowers. The lender is the party with full expertise in a real-estate deal and it’s up to the lender to cover its own rear-end. Allowing recourse against the borrower beyond the resale value of the collateral property would make the lenders even more irresponsible.

If anything, the solution would rather be making strict non-recourse the rule for any home-equity-backed lending, not just first mortgage but also second mortgages and HELOCs. Lenders would know the lien is all they have to back them up and would pay attention. Otherwise, real estate lending is going to turn into an even worse cesspool, like student loans.

Either a loan is a personal loan or it’s a collateralized loan, but that stuff in-between is toxic.

I agree. All this manipulation of people into borrowing beyond their means has to stop. I believe it was the IMF, maybe another International Lender, that oversold poor countries into building infrastructure and other projects they just could not afford resulting in bankruptcy, inflation and financial instability.

[...] Equity Extraction and Mortgage Default | The Big Picture http://www.ritholtz.com/blog/Once upon a time, the Texas Constitution prohibited virtually all equity extraction on a residential homestead. In the nineties, the banksters mounted a huge PR campaign to convince voters to change that. While successful in … [...]

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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